HSBC Asia Seminar for Investors and Analysts Day 1 presentations
Date: 9 April 2018 HSBC Asia Seminar for Investors and Analysts Important notice and forward-looking statements
Important notice The information, statements and opinions set out in this presentation and subsequent discussion do not constitute a public offer for the purposes of any applicable law or an offer to sell or solicitation of any offer to purchase any securities or other financial instruments or any advice or recommendation in respect of such securities or other financial instruments. The information contained in this presentation and subsequent discussion, which does not purport to be comprehensive nor render any form of financial or other advice, has been provided by HSBC Holdings plc and its subsidiaries (the “Group”) and has not been independently verified by any person. No responsibility, liability or obligation (whether in tort, contract or otherwise) is accepted by the Group or any member of the Group or any of their affiliates or any of its or their officers, employees, agents or advisers (each an “Identified Person”) as to or in relation to this presentation and any subsequent discussions (including the accuracy, completeness or sufficiency thereof) or any other written or oral information made available or any errors contained therein or omissions therefrom, and any such liability is expressly disclaimed. No representations or warranties, express or implied, are given by any Identified Person as to, and no reliance should be placed on the accuracy or completeness of any information contained in this presentation, any other written or oral information provided in connection therewith or any data which such information generates. No Identified Person undertakes, or is under any obligation, to provide the recipient with access to any additional information, to update, revise or supplement this presentation or any additional information or to remedy any inaccuracies in or omissions from this presentation.
Forward-looking statements This presentation and subsequent discussion may contain projections, estimates, forecasts, targets, opinions, prospects, results, returns and forward-looking statements with respect to the financial condition, results of operations, capital position and business of the Group (together, “forward-looking statements”). Any such forward-looking statements are not a reliable indicator of future performance, as they may involve significant assumptions and subjective judgements which may or may not prove to be correct and there can be no assurance that any of the matters set out in forward-looking statements are attainable, will actually occur or will be realised or are complete or accurate. Forward-looking statements are statements about the future and are inherently uncertain and generally based on stated or implied assumptions. The assumptions may prove to be incorrect and involve known and unknown risks, uncertainties, contingencies and other important factors, many of which are outside the control of the Group. Actual achievements, results, performance or other future events or conditions may differ materially from those stated, implied and/or reflected in any forward-looking statements due to a variety of risks, uncertainties and other factors (including without limitation those which are referable to general market conditions or regulatory changes). Any such forward-looking statements are based on the beliefs, expectations and opinions of the Group at the date the statements are made, and the Group does not assume, and hereby disclaims, any obligation or duty to update, revise or supplement them if circumstances or management’s beliefs, expectations or opinions should change. For these reasons, recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. No representations or warranties, expressed or implied, are given by or on behalf of the Group as to the achievement or reasonableness of any projections, estimates, forecasts, targets, prospects or returns contained herein. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our Annual Report and Accounts for the fiscal year ended 31 December 2017 filed with the Securities and Exchange Commission on Form 20-F on 20 February 2018 (the “2017 20-F”). This presentation contains non-GAAP financial information. The primary non-GAAP financial measure we use is ‘adjusted performance’ which is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items which distort period-on-period comparisons. Significant items are those items which management and investors would ordinarily identify and consider separately when assessing performance in order to better understand the underlying trends in the business. Reconciliations between non-GAAP financial measurements and the most directly comparable measures under GAAP are provided in the 2017 20-F and the Reconciliations of Non-GAAP Financial Measures document which are both available at www.hsbc.com. Information in this presentation was prepared as at 6 April 2018. Asia Day 1 presentations
Asia 03
Greater China 24
Hong Kong 37
Mainland China 48
Risk 65
Appendix 73
Glossary 76 Asia
9 April 2018
Peter Wong Deputy Chairman and Chief Executive, The Hongkong and Shanghai Banking Corporation Limited Asia Agenda
Asia is attractive
HSBC franchise in Asia
Financial performance
Position vs. peers
Strategic priorities
Summary Asia: Asia is attractive Asia accounts for over 30% of world GDP and is among the fastest growing regions globally
Nominal GDP1 Key growth drivers USDtn CAGR % 2000 - 2045 Urbanisation2 34 73 370 In 2025, 2.5 billion people (more than half of 3% +2 7.3 MENA 7% 4% +19 6% the world’s urban population) are expected to +3 8% +19 7% live in Asia’s cities Latin 5.4 By 2030, 44% of population in Asia to be America 30% 20% +10 27% +55 urban, contributing over 85% of GDP Europe 4.6 20% 3 North +55 Rising middle class 35% 28% America +9 4.2 Key source of wealth creation across many Asia markets 47% 6.9 Middle class is expected to more than double from 552 million households to 1.2 billion 32% +149 Asia 26% +15 households between 2013 and 30
By 2030, Asia is expected to account for 2000 2015 2045E 66% of the world’s total middle class population, up from 28% in 2009 By 2045, Asia’s GDP is expected to be 26% higher than the combined GDP of North America and Europe Increase in Asia multinational corporations (MNCs)4 Asia GDP, USDtn 163 North America + Europe GDP, USDtn 128 MNCs headquartered in Asia form the largest group (40%) in the Fortune Global 500 60 48% of the Asia MNCs are from China, up 25 9 21 from only 13% in 2005
2000 2015 2045E
1. Source: Global Insight 2. Source: McKinsey 3. Source: BCG, OECD, Middle class defined as households with daily expenditure between USD10 and USD100 per person in purchasing power parity terms 5 4. Source: Towers Watson, 2015. Asia MNCs represented only 24% of Fortune Global 500 in 2006 Asia: Asia is attractive Strong connectivity with the rest of the world, representing 35% of global trade in 2016
Regional trade corridors 2016 Value of exports + imports
Asia – Europe USD1.6tn Asia – NAFTA USD1.4tn China 56%44% China 42% 58% Rest of Asia Rest of Asia
Asia will continue to grow its share of global trade Total trade by region 2016 2% 2025 2% Asia – MENA Intra-Asia 6% 7% USD0.7tn USD3.0tn 4% 35% 4% 38% China 37% 35% 30% 70% 40% China 17% 14% 60% Rest of Asia Rest of Asia Asia Europe Latin America NAFTA MENA Sub-Saharan Africa
Source: Oxford Economics, UNCTAD, Global Insight 6 Asia: HSBC franchise in Asia HSBC Asia contributed 50% of Group adjusted revenues and >75% of Group adjusted profits in 2017
Asia vs. Rest of Group Dividends remitted to Group1 2017 adjusted basis, USDbn USDbn, constant currency basis
52 21 963 1,364
7.2 8.5% CAGR 50% 44% 48% Asia 6.1 5.5 5.5 77% 4.7 4.3 4.2 3.7 3.5
56% Rest of Group 50% 52%
23%
Adjusted Adjusted Customer Customer 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue PBT loans and accounts advances
1. The Hongkong and Shanghai Banking Corporation entity basis 7 Asia: HSBC franchise in Asia Footprint in Asia enables our strategy around international connectivity
HSBC footprint in Asia Wholesale (CMB + GB&M), 2017 USDbn 12 275 Greater China1 Home market (Hong Kong) South Korea Investing for future Japan (Pearl River Delta, PRD) China Hong Kong 55% Bangladesh China outbound / Belt Hong Kong key 62% Taiwan and Road Initiative (BRI) booking centre for Hong Kong pan-Asia business India Macau Other priority markets2 Trade and capital flows Thailand Vietnam Philippines Greater Sri Lanka Malaysia BRI linkages China excl. Maldives Emerging middle class Hong Kong1 Singapore Indonesia Mass affluent, digital
3 Mauritius Network markets Other 2 Connectivity to corporate priority markets Australia clients Retail to support funding Network markets3 network Revenue4 Customer loans and advances New Zealand
1. Greater China comprises Mainland China, Hong Kong, Macau and Taiwan 2. Other priority markets comprises Singapore, Malaysia, Indonesia, India and Australia 3. Network markets comprises Vietnam, Thailand, Philippines, Bangladesh, Japan, Maldives, Mauritius, New Zealand, South Korea and Sri Lanka 8 4. Reported Asia: Financial performance Balance sheet growth since 2010
Asia loans and advances to customers (net)1, USDbn
8.0% CAGR 426 363 356 365 312 343 249 282
2010 2011 2012 2013 2014 2015 2016 2017
Asia customer accounts1, USDbn
5.4% CAGR 657 599 632 530 549 577 456 489
2010 2011 2012 2013 2014 2015 2016 2017
1. Reported basis 9 Asia: Financial performance Sustainable and profitable franchise
Asia financial performance, 2017 Key achievements, aligned with Group strategic priorities Reported basis
Gained market share, e.g. Trade Finance2, Mortgages3 4.6% RoRWA 17.0% RoTE1 1.88% NIM1 and Life Insurance4 in Hong Kong
46% CER 1.3% Jaws 0.13% LICs / Loans Accelerated growth in corridors
USDbn 2016 2017 Y-o-Y Continued to drive collaboration between businesses Revenue 23.3 25.8 11% (c.18% growth Y-o-Y) LICs (0.7) (0.6) (16)% Established fundamentals in China / PRD to support Operating expenses (10.8) (11.8) 9% future expansion Share in profits of associates 1.9 1.9 (2)%
Profit before tax 13.8 15.3 11% Strengthened position in ASEAN
vs. USDbn Dec16 Dec17 Continued to grow Wealth Management and Insurance Dec16 Loans and advances to 365 426 17% Accelerated digital investments customers (net) Customer accounts 632 657 4% RWAs 334 358 7% A/D ratio 57.8% 64.8% -
1. The Hongkong and Shanghai Banking Corporation entity basis 2. Hong Kong Monetary Authority statistics 3. Source: mReferral. New sales count, legal mortgages 10 4. Source: Industry statistics published by IA (Insurance Authority), Hong Kong, FY17 Annualised New Premium Asia: Financial performance Balanced performance across four global businesses
Asia financials by global business, 2017
Reported basis % % growth Y-o-Y RBWM GPB CMB GB&M Corporate Centre1
Revenue, 2017 Total = USD25.8bn Loans and advances to customers (net), 2017 Total = USD426bn 1% 13% 26% 30% 11% 0% 32% 39% 18% 23%
3% 25% 3% 22% 34% 16% 12% 14%
PBT, 2017 Total = USD15.3bn Customer accounts, 2017 Total = USD657bn
5% 1% 21% 18% 35% 31%
53% 6%
(2)% 20% 1% 26% 2% 6% 22% 4%
16% (3)%
1. Corporate Centre includes Associates and Balance Sheet Management (BSM) 11 Asia: Position vs. peers Largest among major international and regional banks in Asia1
Total Asia2 Revenue Loans and advances to customers (net) (USDbn) 2017 2016 2017 2016
25.8 426 HSBC Asia +11% +17% 23.3 365
9.4 209 Global Peer +2% +14% 9.2 184
8.9 242 Regional Peer 1 +7% +16% 8.3 208
7.0 175 Regional Peer 2 +14% +17% 6.1 150
6.4 174 Regional Peer 3 +10% +13% 5.8 153
6.6 120 Regional Peer 4 +4% +12% 6.3 107
4.1 78 Regional Peer 5 +6% +11% 3.8 70
1. Excludes Asia-Pacific based banks where majority of revenue generated in its domestic market and excludes Japanese banks. Peers include Standard Chartered, DBS, UOB, OCBC, Maybank and CIMB 2. Source: Company filings; figures on reported basis and include impacts from disposals and other significant items 12 Asia: Position vs. peers Strength of the franchise reaffirmed Select examples
2017 awards continue to follow past successes
Asia's Best Bank Best Overall Offshore RMB Products /
Hong Kong's Best Bank Services (6 consecutive years) World's Best Investment Best for Offshore RMB Clearance, Bank in the Emerging Renminbi Transaction Banking and Settlement Internation- Best Bank Markets Best for Offshore RMB Liquidity alisation Management (e.g. Deposits, Cross- (RMBI) Border Concentration / Pooling) Asia’s Best Bank
Asia Bond House of the Year (2 Best Belt and Road Bank consecutive years) Emerging Markets Bond House of the Year Best Belt and Road Bank Best Bond House (3 consecutive Belt and years) Key Road Best Regional Cash Manager for Best Overall International products Awards Corporates in Asia Bank for BRI
Best Bank for BRI-related Ranked 1st in terms of Cash infrastructure finance in Management and Trade Finance S.E. Asia & in South Asia market penetration for Large Corporates in Asia (4 consecutive years)
13 Asia: Position vs. peers Customers at the heart of what we do – seen in their feedback and recognition of our brand
Strongly recommended by our customers (Retail) Well recognised brand Customer Recommendation Index (CRI) in key Asia markets, 20171 Brand Power Ranking – vs. financial services firms, 20171
Hong Kong Malaysia Singapore Hong Kong Malaysia Singapore
#1. HSBC #1. HSBC DBS / POSB #2. Hang Seng Maybank OCBC Bank #1 #4 #7 Standard Chartered Standard Chartered UOB
Citibank Public Bank #4. HSBC
Corporate and Retail customers recognise our ability to serve their needs
"We are very happy with their “They have an international “Worldwide recognition, “I've been with this bank service in term of its product network and hence it is a innovative in products for 30 years, all the time capabilities, responsiveness of the more efficient way to operate and services and there have been no staff, the co-operation of the staff in all countries with one understands their mistakes - HSBC is and e-banking. We plan to look for bank." customer’s needs" really the bank of Hong this bank (HSBC) in the near future Kong " to fund our new activities."
Corporate Customer in Indonesia Corporate Customer in India Retail Customer in Retail Customer in 2017 Greenwich 2017 Greenwich Singapore Hong Kong Cash Management report Trade report
1. Source: HSBC Pulse survey 2017. Kantar TNS Global 14 Asia: Strategic priorities HSBC Asia priorities
Leverage HSBC’s international connectivity and continue to capture emerging opportunities
Business corridors International connectivity Belt & Road Initiative (BRI)
RMB Internationalisation Cross- Digital & business China innovation collaboration China / Pearl River Delta (PRD)
ASEAN1 Growth / domestic scale Wealth management
1. ASEAN consists of 10 countries in South East Asia. HSBC is present in 6 ASEAN countries (Singapore, Malaysia, Indonesia, Philippines, Thailand, Vietnam) 15 Asia: Strategic priorities Trade flows increasingly centred around Asia
Global 20 top trade corridors expected to grow to USD10tn by 20301 Key opportunities for HSBC Asia at either end Non-Asia related corridors Number of Asia corridors HSBC present in both ends of Number of non-Asia corridors the top 20 global corridors; 14 of the top 20 have at least one end of the corridor in Asia
Key trade flow growth driven 65% by intra-regional connectivity 56% in Asia 12 8 14 6 Significant opportunities from 2010 – USD3.5tn 2030E – USD10.0tn “China going out” – e.g. infrastructure and trade Intra-Asia activity will be the key driver of growth and will account for 40% of trade within the Global 20 top trade corridors financing, supply chain Global 20 top trade corridors 2010 – 2030 Growth, USDtn solutions, capital markets 10.0 solutions such as ECM / DCM and M&A 2.9 1.5 3.5 2.1 Regional transaction banking capabilities to service treasury centres in key hubs e.g. Hong 2010 Trade Non Asia related Asia at Asia at 2030E Trade Kong, Singapore either end both ends
1. Source: Oxford Economics (NOV16) 16 Asia: Strategic priorities HSBC is well-positioned to capture BRI opportunities
Belt and Road Initiative is made up of “The Silk Road Economic Belt” and “The 21st Century Maritime Silk Road”
Seek to connect > 65 countries across Asia, Middle East, Africa and Europe, c.30% of global GDP and 63% of world population1
By improving the global infrastructure and network connectivity, China can better facilitate international trade and development
China’s trade with countries along the Belt and Road is expected to surpass USD2.5tn by 20252
HSBC has 25 China Desks with dedicated China specialists across the Group4
BRI countries with HSBC presence BRI countries with HSBC presence and dedicated China Desk
Committed funding by multinationals / policy banks3 Agency Capital (USDbn) CDB 890 AIIB 100 SRF 55 NDB 50 CHEXIM 19
1. China Development Bank 2. Xi Jinping in 2015 Boao Forum, Xinhuanet, 29MAR15 3. CDB: China Development Bank; AIIB: Asian Infrastructure Investment Bank; SRF: Silk Road Fund’; NDB: New Development Bank; CHEXIM: Export-Import Bank of China 17 4. As of February 2018. Global coverage includes Argentina, Australia, Bangladesh, Canada, France, Germany, Hong Kong, India, Indonesia, Israel, Luxembourg, Macau, Malaysia, Mauritius, Mexico, Poland, Saudi Arabia, Singapore, Sri Lanka, South Africa, Thailand, UAE, UK, US, Vietnam Asia: Strategic priorities Opportunity to grow China domestic and outbound business
Growth opportunities in mainland China Key opportunities for HSBC
Largest foreign bank network: Optimise strategic client coverage and 227 outlets in 57 cities, 23 provinces / municipalities1 China China Desk infrastructure to drive Outbound / opportunities to Group 2.4 FY17 Reported Revenue, USDbn BRI 0.6 FY17 Reported PBT (ex Associates), USDbn 40.7 FY17 Loans and advances to customers, USDbn Continue to grow customer base and 46.0 FY17 Customer accounts, USDbn capture sustainable growth from higher Domestic value-added sectors HARBIN scale
CHANGCHUN Scale-up retail banking franchise in SHENYANG Pearl River Delta BEIJING DALIAN TANGSHAN
TIANJIN QINGDAO TAIYUAN Capture capital financing, sustainable JINAN Rise of ZHENGZHOU finance and China financial institution- XI’AN SHANGHAI Chinese related opportunities via cross- HEFEI HANGZHOU capital CHENGDU WUHAN NINGBO business collaboration CHONGQING NANCHANG markets CHANGSHA FUZHOU
GUANGZHOU XIAMEN KUNMING NANNING Sustain market leadership, enhance SHENZHEN supporting system and resources, and maintain thought leadership Tier 1 cities with HSBC China outlets RMBI Cities with HSBC China outlets RMBI settlement capabilities in 56 Province / municipality with HSBC China branch presence countries
1. Includes Hang Seng Bank China, as at December 2017 18 Asia: Strategic priorities Strong economic fundamentals in ASEAN countries; long-term growth
Strong economic fundamentals Key opportunities for HSBC ASEAN real GDP1, USDtn ASEAN emerging as a key bloc 2 +4.5% Growing connectivity among markets 4.9 Driven by ASEAN Economic GDP 2.8 Community (AEC) and other policies to growth be implemented e.g. ASEAN Trade in 2017 2030E Services Agreement ASEAN HQ’ed corporates selectively % Global GDP 3.5% 4.3% expanding to adjacent markets
Stronger economic integration over ASEAN trade3, USDtn Exports time (capital, trade and people flows) +7.3%2 5.6 Imports Growth opportunities in each market 3 2.9 4th largest economic region by 2030 Trade 2.2 650m people (c.9% of world total); growth 1.2 2.7 1.0 large middle class (set to double by 20254) and rising wealth 2017 2030E HSBC well-positioned % Global Trade c.7% c.8% USD180m, USD325m, USD463m PBT ASEAN per capita GDP3, USD'000 (FY17) in Indonesia, Malaysia and Singapore respectively 2.6x Network presence in other markets – 11.0 Philippines, Thailand and Vietnam Wealth 4.2 Unique ability to capture both intra- creation ASEAN and ASEAN with rest of the world flows 2017 2030E
Population, m 646 723
1. 2010 USD basis; Source: Global Insight 2. 2017-30 CAGR 3. Source: Global Insight 19 4. Source: Mckinsey, Understanding ASEAN Asia: Strategic priorities Asia expected to be largest creator of wealth
Rising wealth in Asia Key opportunities for HSBC Private financial wealth1, USDtn 2016-21E Wealth management Growth CAGR 223 Significant market – c.USD62tn in private financial wealth in Asia1
Private Banking solutions, tapping into connections from GB&M and CMB franchises
Expansion through “Jade” (focussed on clients 166 Growth primarily with USD1m-5m in assets) 33% 5.6% through market E. Europe 152 performance Strong Premier franchise (customers with L. America USD100k-USD1m in assets) MEA Insurance
Protection gap in Asia; growth opportunities in N. America 34% 22% 3.5% China, ASEAN Growing life insurance market share in Hong Kong2 7% 1.7% W. Europe 25% 8% Y-o-Y growth in insurance manufacturing annualised new business premiums in Asia
Opportunity to grow through our footprint Japan 10% Growth primarily 28% 9.9% through higher savings / new Asset management wealth creation Asia ex Japan 21% HSBC Asset Management with c.USD170bn AUM in Asia (2017)
2014 2016 2021E Opportunity to serve retail and institutional clients
1. Source: BCG Global Wealth 2017 2. Source: Market position based on industry statistics published by IA (Insurance Authority), Hong Kong, FY17. Market rank #4 and market share of 16.4% across HSBC and Hang Seng 20 Asia: Strategic priorities Leveraging universal banking model to enable further cross-business revenue synergies
Meeting end-to-end client needs: examples Resulting in cross-business revenue synergies Collaboration revenue (USDbn) GB&M helps CMB clients RBWM provides payroll with FX, derivatives 18% and banking services to hedging and gaining 6.4 employees of CMB / GB&M access to Debt / Equity clients markets 5.4 2.7 In-business 2.2 synergies1
Cross- 3.7 business 3.2 synergies2
2016 2017
GPB fulfils Private RBWM provides Asia as a % of Banking needs of Insurance and Asset Group collaboration 52% 54% Management products owners and / or senior revenue to GPB clients management of CMB / GB&M clients
1. Revenue generated from separately managed operations (Securities Services, Asset Management and Life Insurance Manufacturing) that are reported within a global business line. Revenue from Asset Management products to GB&M, CMB and GPB customers that are included in cross-business synergies are excluded from manufacturing revenues in in-business synergies 2. Revenue generated from providing products from one global businesses to the other three global businesses – e.g. FX solutions (from GM) to CMB / RBWM / GPB customers 21 Asia: Strategic priorities Digitisation: transforming customer experience and improving staff productivity
Area Description Select highlights
Enhanced our key digital channels with improvements to Mobile App Streamlining / online and mobile banking platforms Biometric authentication upgrading our Digital Transformation for Corporates (facial, fingerprint and platforms voice), mobile security Retail Transformation Programme key, Easy Pay (in Hong Kong), Easy Invest App Pursue opportunities in the FinTech space and deploy solutions with a higher level of agility than our traditional Innovation / model PayMe (P2P payments) partnerships E.g. Kyriba, Tradeshift, WeChat, BlockChain, Send money instantly to eCommerce anyone for free in Hong Kong Investment in digital transformation, reshaping the branch network and increase sales force capacity Staff Trade Transaction Tracker enablement E.g. Tablet on-boarding, Wealth dashboards, end-to- end credit decisioning tools Global view of documentary credits, collections and payments across markets and countries worldwide in one single app Live in Bangladesh, Australia, Hong Kong, India, Korea, Sri Lanka and Maldives, Enhance customer experience Japan, Singapore
22 Asia Continue to leverage HSBC’s international connectivity to capture emerging opportunities
Key takeaways Asia financials, reported basis
Asia will continue to develop as the world’s leading Market USDbn 2016 2017 Y-o-Y economic region over the coming decade summary China continues to be an engine of growth Revenue 23.3 25.8 11%
HSBC’s footprint and history in the region is unrivalled HSBC LICs (0.7) (0.6) (16)% and therefore puts HSBC in a strong position to benefit position from Asia’s economic development Operating expenses (10.8) (11.8) 9%
Share in profits of 1.9 1.9 (2)% Leveraging HSBC’s international connectivity: associates Capture opportunities along business corridors Profit before tax 13.8 15.3 11% Help clients participate in BRI opportunities using HSBC’s global network and universal banking model
Capturing China-related opportunities: Grow China domestic (including PRD) and outbound vs. USDbn Dec16 Dec17 business Dec16 Strategic Strengthen position as leading international RMB bank priorities Loans and advances Growing our domestic scale in our priority markets: 365 426 17% to customers (net) Capture opportunities arising from economic expansion and wealth creation across ASEAN Customer accounts 632 657 4% Capture opportunities in Wealth and investment flows across the region RWAs 334 358 7% Continue to focus on cross-business collaboration and invest in digital capabilities A/D ratio 57.8% 64.8% -
23 Greater China
9 April 2018
Helen Wong Chief Executive, Greater China Greater China Agenda
Overview
Financial performance
Strategic priorities Greater China: Overview We have strong presence in Greater China
Significant scale in Greater China HSBC: well-positioned to capture associated opportunities (2017) The four economies make up Mainland China c.15% of global GDP1 • Established in 1865 • Largest foreign bank4 Nearly 25% of global top 200 cities • 227 outlets in over 50 cities expected to be in Greater China by • 24,000 employees5 20252 • PBT6: USD625m Highly interconnected and growing – total bilateral trade between the four areas in 2017 amounted to over USD550bn3 Closer economic integration, especially between Hong Kong and mainland China, to be a key macro Taiwan development theme • Established in 1885 • 31 outlets in major cities City clusters of Guangdong’s Pearl • 2,100 employees River Delta and Hong Kong • PBT: USD199m expected to rank as the world’s Macau7 largest banking revenue pool, with • Established in 1887 Hong Kong total banking revenue of USD185bn • 4 outlets • Established in 1865 by 20252 • 260 employees • Largest bank by assets • >200 outlets • 30,000 employees • PBT: USD9,598m
1. As per 2016. Source: World Bank 5. Including Group services companies 2. Source: McKinsey Global Institute, HSBC analysis 6. Reported PBT excluding share of profit in associates and JVs 3. CEIC 7. Macau financials not disclosed 26 4. By number of outlets Greater China: Financial performance Greater China is a significant contributor to Group profits, anchored by Hong Kong
Hong Kong as a % of Group1 Key sites of Greater China by global business2
2017, USDbn Reported PBT, 2017, USDm
52 21 970 1,364 625 100% 9,598 199 100% 28% 26% 31% 35% 22% 47% 53% 5%
62% 54% 26%
14% 20% 20% 3% 5% -1% -7% Adjusted Adjusted Gross loans Customer -1% revenue PBT and accounts Hong Kong Mainland China3 Taiwan advances to customers RBWM GB&M Corporate Centre HK Rest of Asia Rest of Group CMB GPB
1. Source: Group ARA 2. Source: Group ARA. Macau financials not disclosed 3. Excluding share of profit in associates and JVs 27 Greater China: Strategic priorities Greater China strategic priorities
1 Strengthen Hong Kong as the centre of growth, enhance local market Leadership in Hong leadership and monetise the increasing connectivity with mainland Kong China
2 Pearl River Delta Commercialise investments in PRD and drive growth from economic (“PRD”) integration in Guangdong-Hong Kong-Macau Greater Bay Area (“GBA”)
3 RMB Capture opportunities from progressive RMBI and anticipated opening internationalisation up of China capital markets, continue to strengthen our position as the (“RMBI”) leading international bank for RMB business globally
4 Optimise strategic client coverage and China Desk infrastructure to China outbound / BRI drive opportunities to Group
5 Play leading role in advising and financing sustainable financing deals in Sustainable finance Greater China / Asia
28 Greater China: PRD / GBA 3x increase in GDP forecasted for the Guangdong, Hong Kong and Macau Greater Bay Area (“GBA”) by 20301
Forecasted to be the world’s leading bay area Economy corresponds in size to a leading global economy2 metropolitan1
Guangdong province (GD) Pearl River Delta (PRD) GDP (USDtn) 2030F 2020F 2015
4.6 GD-HK-Macau 2.0 Greater Bay 3x Guangzhou Shenzhen 1.4
Macau3 Hong Kong3 3.2 Greater Guangdong province (GD) 2.2 Tokyo Bay 1.8 Greater Bay Area (2017) GD PRD HK Macau Korea 2.2 Population, 112 59 New York 7 0.6 51 m (8% of China) (53% of GD) Metropolitan 1.6 Area GDP, 1,330 1,122 1.4 341 51 1,454 USDbn (11% of China) (84% of GD)
Trade, 1,009 962 2.2 1,056 11 1,052 San Francisco USDbn (25% of China) (95% of GD) 1.1 Foreign Direct Bay Area 23 21 0.8 Investment, (FDI) 108 3 23 USDbn (16% of China) (95% of GD)
1. Source: “Research on the Development and Planning of GD-HK-Macau Greater Bay Area City Cluster“, by China Center for International Economic Exchanges 2. Source: Statistics Bureau of Guangdong Province, Hong Kong Census and Statistics Department, Macau Census and Statistics Department, UNCTAD World Investment Report, Bank of Korea 3. Hong Kong and Macau not part of PRD / Guangdong 29 Greater China: PRD / GBA HSBC is the largest foreign bank1 in Guangdong / PRD, backed by investments since 1980s
Presence Outlets Staff since # # Shaoguan
Bank outlets2 1982 86 c. 2,800 Meizhou Qingyuan Heyuan Chaozhou Life insurance 2016 1 c. 20 Shantou Zhaoqing (1) Huizhou (4) Jieyang Securities JV 2017 1 c. 110 Guangzhou (20) Foshan (8) Dongguan (5) Shanwei Other Group 2 services 2006 4 c. 14,000 Shenzhen (19) companies3 Zhongshan (5) Yunfu Zhuhai (4) 1
3 Hong Kong Jiangmen (4) Maoming Macau Yangjiang
Zhanjiang Cities with HSBC presence (# of bank outlets in PRD)
HK / Macau not part of GD / PRD
1 Shenzhen Qianhai Free Trade Zone
GD 2 Guangzhou Nansha Free Trade Zone
PRD 3 Zhuhai Hengqin Free Trade Zone
1. By number of outlets 2. Including HSBC, Hang Seng, and Rural Bank 30 3. Including HSBC Software Development Guangdong Ltd, HSBC Electronic Data Processing Guangdong Ltd Greater China: RMB internationalisation China remains committed to internationalise the RMB, as economic connectivity with global markets continues to rise
The journey of RMB internationalisation since January 2011 CNY / USD1 Phase 1: Gradual liberalisation of current and capital accounts Phase 2: FX reform Phase 3: RMBI restart 0.17 Increased two-way volatility, controls Policy support on cross-border RMB flows and ODI Relaxation of 0.16 led to decreased liquidity window guidance Market confidence
Further opening up 0.15 Strong CNY/USD lead to RMB becoming a AUG15 of capital markets more widely used RMB trade finance, Foreign payments and financing currency exchange Index inclusions reform 0.14 JAN11 FEB18 RMB payment #17 #14 #8 #5 #5 #6 #5 ranking2 Liquidity and 860 1,004 851 global usage to Offshore 589 603 547 559 increase with a RMB more stable FX liquidity3, RMBbn environment 3,821 3,843 and increasing 3,181 3,312 3,330 3,011 3,140 China FX investment / reserve4, trade flows USDbn 2011 2012 2013 2014 2015 2016 2017
1. Source: Bloomberg; CNY / USD 2. Source: SWIFT RMB’s share as a domestic and international payments currency 3. Source: HKMA; Only display RMB deposits in Hong Kong as it is the most representative offshore RMB centre 31 4. Source: PBOC Greater China: RMB internationalisation HSBC as the leading international bank for RMB business
HSBC at the forefront of offshore RMB business HSBC’s RMBI business
RMB capabilities across 50 markets Ranked 1st in the offshore Bonds st RMB bond underwriting First bank with capability to settle RMB in six 1 league table since 20111 continents Securities Market share in RQFII Led the first-ever offshore RMB-denominated bond custodian business2 Services and IPO 53% – ranked 1st among all banks
Led the first Belt and Road Panda Bond RMB Number of retail and distributed via Bond Connect 3 accounts 900k corporate RMB accounts Among the first banks to offer trading services under the Shenzhen-Hong Kong Stock Connect and 2017 Group RMBI revenue, Shanghai-Hong Kong Stock Connect Revenue down 5% Y-o-Y affected by 1.2 USDbn dampened market volumes First foreign bank to open a majority-owned joint venture securities company in mainland China Voted best for offshore RMB product and services Among the first banks to be connected to China’s Cross-border Interbank Payment System (CIPS) Ranked #1 for Best Overall Offshore RMB Products and Services in the Asiamoney Among the first banks to offer funds under the Offshore RMB Poll for the sixth consecutive year Mutual Recognition of Funds (MRF) scheme
First foreign bank able to joint lead underwrite Won The Asset’s inaugural overall Best RMB Bank award in Panda bond issuances by offshore non-financial 2017, after winning the Best RMB Bank awards in Germany, Korea, corporates in China Interbank Bond Market (CIBM) Singapore, Taiwan, United Kingdom and United States
1. Bloomberg offshore RMB bond league table; as of DEC17 2. Market share of onshore RQFII custodian activity based on approved quota as of DEC17 32 3. Globally as of DEC17 Greater China: China outbound / BRI China is now a net exporter of capital, with BRI driving the next wave of outbound investment
China’s structural investment to continue, driven by BRI Financing will rely on both public and private capital
1 Outward Direct Investment (ODI) 2017, curb BRI-related investments into AIIB (Asian Infrastructure Investment Bank) real estate, sports Multilateral NDB (New Development Bank) clubs, etc development USDbn Y-o-Y % banks ADB (Asian Development Bank), IMF 200 44 (International Monetary Fund), World Bank
40 170 Silk Road Fund
36 Chinese- China Development Bank 150 backed capital CHEXIM 32
118 120 28 103 “Big Four” banks: ICBC, Bank of China 100 93 24 Chinese (BOC), China Construction Bank (CCB), commercial Agriculture Bank of China (ABC) 78 20 banks 69 Domestic banks for BRI projects in 60 mainland China 16 50 12 Capital markets across key financial centres including Hong Kong, London, 8 Singapore Private capital 12% 13% 9% 12% Private sector including commercial 0 4 2010 2011 2012 2013 2014 2015 2016 2017 banks, corporates, global investors e.g. sovereign wealth funds, pension funds
1. Source: Ministry of Commerce, non-financial ODI 33 Greater China: Sustainable finance As Chinese government commits to transitioning to a low carbon economy, annual investment of USD317bn needed by 2020
China targets to cut carbon intensity by 18% in 13th FYP1 Estimated annual investment needs2
Carbon dioxide emission kg CO2 per USD1,000 of GDP1 China US Environment 127 protection 2010 actual / 712 End of 11th Five- Clean energy 79 Year Plan (“FYP”) 361 -c.20% Clean 79 transportation
579 Energy efficiency 32 2015 actual / End of 12th FYP 306 -18.0%-18% Total investment 317
Public investment 48 (15%) 475 2020 plan / End of 13th FYP Private investment 270 (85%)
1. Source: China’s 13th Five Year Plan, Emissions Database for Global Atmospheric Research (“EDGAR”) of European Commission 2. Source: Green Finance Task Force by PBOC 34 Greater China: Sustainable finance HSBC plays a leading role in advising and financing sustainable finance deals in Greater China and Asia
Leading role in key sustainable finance deals in Greater China Asia Green, Social and Sustainability Bond League ex. RMB1
Green finance advisor to New World Development’s green Rank Bookrunner USD (m) # % loan in Hong Kong (MAR18) Proceeds will be used for a green commercial re- 1 HSBC 1,870 13 12.92 development project, which has achieved the world's first WELL Building Standard Pre-certification 2 European bank 1,552 9 10.73
Financial advisor for the China Resources Consortium to purchase 30% stake in Dudgeon offshore wind farm (DEC17) 3 US bank 1,096 5 7.58 The client’s first international investment in renewable energy sector; reinforces HSBC’s leading position in advising 4 European bank 974 7 6.74 and financing renewable energy transactions worldwide 5 US bank 923 6 6.38 Joint Green Structuring Advisor and Joint Global Coordinator for ICBC to issue its 1st Green Bond (SEP17) 6 European bank 659 6 4.56 First Belt and Road Climate Bond and first Green Bond in alignment with both ICMA Green Bond Principles and PBOC 7 European bank 654 6 4.52 Green Bond Categories by a Chinese Financial Institution
Joint Lead Manager and Sole Climate Action Finance 8 US bank 488 2 3.37 Framework Structuring Advisor for Castle Peak Power Company, Hong Kong’s main electricity generation company 9 European bank 480 5 3.32 (JUL17) Energy Transition Bonds where proceeds will be used to 10 European bank 467 4 3.23 finance a highly efficient Power Station in Hong Kong
1. Source: Dealogic, 1st January 2017 to 19 March 2018, ranking by Deal Value, Asia ex Japan 35 Greater China: Conclusion Greater China will continue to be a key growth driver for HSBC
HSBC Greater China strategic priorities
Macro trends 1 Hong Kong - continue to drive growth leveraging our market leadership PRD continues to be a key and connectivity with mainland China driver of growth for China • 3x increase in GDP forecasted for the Greater 2 Bay Area by 2030 Pearl River Delta - commercialise investments in PRD, drive growth from economic integration in Guangdong-Hong Kong-Macau Greater Bay Area RMB Internationalisation to continue as economic connectivity with global 3 RMB Internationalisation - sustain market leadership, enhance markets continue to rise supporting system and resources, and maintain thought leadership
China is a net exporter of capital, anchored by BRI 4 China Outbound / BRI - optimise strategic client coverage and China China commits to transitioning Desk infrastructure to drive opportunities to Group to a low carbon economy
5 Sustainable Finance - play leading role in advising and financing sustainable financing deals in Greater China / Asia
36 Hong Kong
9 April 2018
Diana Cesar Chief Executive, Hong Kong Hong Kong Agenda
Overview of Hong Kong economy
Position in Hong Kong
Financial performance
Strategic priorities Hong Kong: Overview of Hong Kong economy An optimistic outlook for Hong Kong in 2018
Hong Kong economy remains resilient1 Positive outlook supported by (% Y-o-Y) 2012 2013 2014 2015 2016 2017 Stable domestic spending 3.8 supported by buoyant market 3.1 2.8 2.4 2.1 activities and low unemployment GDP 1.7 Retail sales rate (2.9% as of DEC17, a twenty-year low) Revival in inbound tourist arrivals 5.4 4.6 4.8 4.1 3.3 Private Pickup in global trade consumption 1.9 Trade underpinned by upturn in environment developed economies and stable outlook on China’s growth 10 9 8 8 9 7 Trade - 2 2 0 Increasing investments from goods -1 -1 public and private sectors, with Exports Imports -4 focus on infrastructure and
6 technology, e.g.: 5 4 3 Hong Kong Airport Three-Runway 2 2 2 2 Investments Trade - 0 System, estimated construction cost of 2 services c.USD18bn -2 -2 Additional government budget of -3 Exports Imports c.USD6bn in 2018 on innovation and technology sector
1. Source: CEIC 2. Airport Authority Hong Kong, cost estimation as of MAR18 39 Hong Kong: HSBC position in Hong Kong HSBC is a market leader in Hong Kong
“The Hong Kong Bank” Leading market share across major products4
Customer Mortgages 1865 >200 accounts #1 #1 Note issuing Outlets in Hong bank since establishment Kong Loans and advances to #1 Trade financing #1 customers Largest Full-spectrum Bank in Hong Kong by assets1 Products and services DCM #1 Dim Sum bonds #1
RBWM customer base3 Selective awards and recognition in 2017 millions • Hong Kong's Best Bank • Hong Kong's Best Investment Bank 7.4 • Best Bank in Hong Kong 4.6 • Best Investment Bank in Hong Kong • Best DCM House in Hong Kong • Best Private Bank in Hong Kong
• Best Corporate and Investment Bank HSBC Hong Kong2 Population of Hong Kong3 • Best Banking Brand in Hong Kong • Best Offshore RMB Products and Services
1. Source: HKMA, HSBC ARA 4. Source: HKMA announcements, Bloomberg, and HSBC internal data; HSBC including Hang Seng. 2. As at DEC17. Active customers. Excludes Hang Seng Mortgages - new sales count, legal mortgages; Loans – loans for use in Hong Kong; DCM - G3 3. Year-end 2017, Hong Kong Census and Statistics Department currency bonds, Asia excluding Japan 40 Hong Kong: Financial performance Sustainable growth backed by balanced business mix
Revenue Profit before tax Business mix (USDbn) 2017 CAGR +7% +8% Y-o-Y +15% +19% Revenue Profit before tax
16.1 9.6 3% 3% 14.0 8.1 9% 5% 17% 14% 10.2 5.7 USD USD 52% 16.1bn 48% 9.6bn 23% 26%
2010 2016 2017 2010 2016 2017
Customer loans Customer accounts Customer loans and advances Customer accounts and advances
+10% 4% +7% +17% 4% 28% 1% Deposits Loans +3% 10% 0% 60% USD USD 32% 462 477 269 477bn 269bn 231 26% 297 35% 141
RBWM GB&M Corp Centre CMB GPB 2010 2016 2017 2010 2016 2017
Financial performances including Hang Seng, on reported basis 41 Hong Kong: Strategic priorities Sustain growth at home and capture opportunities from cross-border activities and capital flows
1 2 3 PRD / GBA: Local market: Global connectivity: Capture opportunities from Enhance competitive edge and Grow China outbound / BRI and closer economic and financial maintain market leadership MNC revenues integration
Capture China outbound / BRI Capture growth from the rising Work closely with HSBC in PRD to demand for wealth management provide a one stop service platform business flows, leveraging full for cross-border customers product suite in Hong Kong as well Improve customer-centric as our global footprint proposition to grow Business Hong Kong + PRD integrated Banking solutions Drive inbound corridor revenue using Hong Kong as a hub to Capital markets business Deliver simpler, faster and safer support MNCs’ operations, trade, banking experience to our opportunities leveraging HSBC and investments in Asia Qianhai Securities customers through digitisation
42 Hong Kong: Local market - wealth management Capture growth from a wealthier Hong Kong / China population
Growing wealth management market in Hong Kong Strategic focus
Continuous wealth creation Wealth FUM, USDbn3 Strengthen China Desks in Hong Kong to HNWI Wealth (USDbn)1 serve offshore wealth needs from 28% mainland Chinese clients 1.4x Wealth Simplify sales processes
Build thought leadership on investment 2016 2017 709 735 769 560 627 4 Scale up branch and mobile sales force Market share with both generalists and specialists 2012 2013 2014 2015 2016 Expand product range Life insurance 16.4% Streamline insurance customer journey 12.8% Strong life insurance market momemtum2 Increase awareness of HSBC Insurance brand with marketing campaigns 2016 2017 (USDbn)
Premier revenue3 2x Enhance Jade with lifestyle privileges and world-class financial solutions 23% 14 Grow Premier supported by comprehensive 9 Proposition 6 6 7 wealth solutions along different life stages Cater to the needs of international clients 2012 2013 2014 2015 2016 focusing on education and investment 2016 2017
1. Capgemini. HNWI defined as individuals with net worth of USD1m or more 2. Hong Kong Insurance Authority. Market size measured by annualised premium. 3. Wealth FUM (by total wealth balances) and Premier revenue exclude Hang Seng 43 4. Insurance market share by annualised new premium. Include Hang Seng. Source: Insurance Authority Hong Kong Hong Kong: Local market - business banking Improve customer-centric proposition to grow Business Banking
SMEs1 are a dynamic force in Hong Kong’s economy Strategic focus
>300k SMEs in Hong Kong Enable customers to conduct and track Enhance transactions through digital channels 24/7 Account for 98% of registered businesses, 47% of employment channel and Strengthen coverage resources, provide coverage financial advisory support to engage entrepreneurs Highly engaged in trade (36%) and retail sectors (15%)
Cater to BB clients’ needs leveraging our Increasingly digital savvy universal banking capabilities, e.g. transaction banking, insurance and wealth, personal BB is a significant contributor to our business in Hong Kong2 Tailor banking services for business owners proposition (as a % of CMB in Hong Kong) and products Work with 3rd parties to offer value adding services, e.g. accounting FY17 (USDbn) Support small businesses to explore Customer international opportunities 125 accounts Capture growth from sectors emerging in economic transition, e.g. Revenue 3.7 Grow “New Build up expertise to support innovation economy” and technology sector clients Partner with Hong Kong Science and Technology Park and Cyberport on Business Banking Other customer segments in CMB incubator and accelerator programmes
1. Source: Hong Kong Census and Statistics Department. Small and Medium Enterprises defined as manufacturing enterprises with less than 100 employees, and non-manufacturing enterprises with less than 50 employees 2. BB refers to small business customers with annual turnover less than USD50m; including Hang Seng 44 Hong Kong: Local market - digitisation Deliver simpler, faster and safer banking experience to our customers
Hong Kong is embracing FinTech Key achievements in 2017
Supportive regulatory environment PayMe launched in FEB17 c.160% Y-o-Y st Aspiration: to promote Hong 1 digital wallet in HSBC Group Active mobile users Kong as a FinTech hub in Asia Easy Invest, AUG17 Initiatives: minimise regulatory Retail New mobile banking,OCT17 c.30% Y-o-Y frictions in customers’ digital Digital sales revenue experiences, e.g. launched banking Reward+, JAN18 FinTech Supervisory Sandbox, Stored Value Facilities 4.7/5 Rating of new mobile 1 FinTech adoption rates 2017 (%) banking in app stores
WeChat notification service, June Growth potential 69 2017 c.120k WeChat notifications 1st commercial bank in Hong Kong 32 33 FinTech Award for Partnership with Xero to Business best SME banking provide accounting banking service in Hong Kong software, March 2017
Hong Kong Global Mainland “Ask Amy”, the Virtual average China Assistant Chatbot, 1Q17
92% accuracy
1. EY FinTech Adoption Index 2017 covering 20 markets globally. % of surveyed consumers had used two or more FinTech services within five broad categories (money transfer and payments, financial planning, savings and investments, borrowing, and insurance) in the prior six months 45 Hong Kong: Global connectivity - China outbound / BRI China is becoming an increasingly large capital exporter, and HSBC Hong Kong is well-positioned to capture China outbound / BRI business flows
Hong Kong is the bridgehead for China’s Case study: support State Grid overseas acquisition of CPFL Energia, outward investment… the 3rd largest electricity utility company in Brazil Mainland China’s ODI by destination1, USDbn Client profile State Grid is the world’s largest power 196 nd CAGR grid / utility company. Ranked 2 of Fortune Global 500 in 2017 +16% Client’s needs HSBC Hong Kong’s support 75 Rest of world 58% +26% Arranged and anchored club loan to support the Hong Kong 48% Bridge financing for acquisition acquisition, using cross-currency swap structure 2011 2016 to help the client achieve lower funding cost
… and first port of call for Chinese corporates Take-out Lead-arranged offshore USD5bn public bond financing in debt issuance as Joint Global Coordinator, tapping Assets of mainland Chinese corporates in Hong capital markets Kong2, USDtn investors across Asia, Europe, and US c. 2.6 11x Provided guarantee facility from Hong Kong to support acquisition of the remaining minority shares Post-acquisition c. 0.2 Cross border funding from Hong Kong to support financial support target company’s operation 1997 2017 Hedge FX risk during the transaction Unique mutual market access via Hong Kong between China / the world HSBC capabilities
Strong balance sheet in Hong Kong Hong Kong - Shanghai Stock Connect Broad product offering in Hong Kong with proven capability Hong Kong - Shenzhen Stock Connect Well-established headquarters relationship + international connectivity Bond Connect across footprint countries 1. Source: CEIC, overall ODI including financial and non-financial 2. Source: China Daily “A golden era for the HK stock market”, 1 July 2017 46 Hong Kong: Conclusion Hong Kong – at the heart of HSBC Asia’s growth
HSBC Hong Kong strategic priorities Macro trends
Economic stability 1 expected to continue Enhance competitive edge and drive growth – wealth management and insurance, business banking, and Further growth driven by digitisation opportunities from:
Growing wealth and SME needs 2 Capture opportunities from PRD / GBA integration – leverage FinTech developments cross-border sector expertise and capabilities Greater Bay Area integration
Outbound trade and investment from China 3 Grow China outbound / BRI and MNC businesses – supported underpinned by BRI by a strong balance sheet and full product suite in Hong Kong, Inbound business from as well as our network in China and globally MNCs into Asia
47 Mainland China
9 April 2018
David Liao President and Chief Executive Officer, China
Irene Ho Chief Executive Officer, HSBC Qianhai Securities Mainland China Agenda
Overview
HSBC in Mainland China
Financial performance
Strategic priorities Mainland China: Overview China is the world’s growth engine…
China has become one of the largest nations by GDP and trade globally, with its growth expected to continue in the mid-long term Growth drivers and key trends
1 1 Share of global GDP Share of global Trade Becoming the global frontier of
100% innovative industries 4.0% Higher quality production along value chain (e.g. electronics, electric vehicles) 5.1% New tech development (e.g. facial / 14.9% Technological voice recognition, bike-sharing) 18.3% upgrading 11.3% 11.7% New businesses springing up as mobile technology matures
e.g. e-commerce, internet-enabled ecosystems
31.6% 14.8% Rise of the middle class in parallel with China’s economic development 24.7% 7.9% 21.4% Wealth More sophisticated / service- 10.9% creation based needs for travel and education; improved customer journeys enabled by digital platforms
64.4% 80.1% 80.4% Sustainable financing / investments 60.4% 60.4% 77.8% Sustainable expected to grow as Chinese 2001 2016 2025F 2001 2016 2025F development Government looks for greener development China US Rest of World
1. Source: CEIC, World Bank, Global Insight 50 Mainland China: Overview …with growth driven by a focus on mega city clusters
Key cities Global GDP projections (USD bn) rank City of similar 2025 size 20254 2017 fast facts1 20254 20171
1 GDP: USD2.4tn, 22% of China 1,028 5 Los Angeles Beijing 414 total Rhine-Ruhr Tianjin 624 13 Population: 253m 275 (Cologne, Dusseldorf etc) Bohai Rim2 Area: 519k km2 Qingdao 190 Key industries: machinery / 163 84 Mumbai equipment, petrochemicals, Dalian 226 65 Montreal aerospace, modern agriculture 110
2 GDP: USD2.2tn, 20% of China 1 Shanghai 1,112 3 New York total 446 Population: 159m 344 58 Kuwait City Nanjing 173 Yangtze Area: 211k km2 River Delta3 307 46 Seattle 2 Key industries: high-end Hangzhou 186 manufacturing, e-commerce, 258 40 Rio de Janeiro biotech, financial services Suzhou 256 3
3 GDP: USD1.3tn, 11% of China Washington Guangzhou 573 15 total 318 D.C. Pearl River Population: 108m 524 Shenzhen 19 Nagoya Delta + Area: 178k km2 332 Rest of Key industries: science and Foshan 384 Guangdong 141 34 Milan tech, electronics, logistics, 298 high-end manufacturing Dongguan 112 49 Bangkok
1. Source: National and Provincial Statistics Bureau 2. Refers to key cities and provinces in the region, does not include small cities in Shanxi Province and Inner Mongolia 3. Refers to key cities and provinces in the region, does not include small cities in Anhui Province 51 4. Source: McKinsey “Global Cities of the Future” Mainland China: HSBC in Mainland China HSBC – the leading foreign bank in China
Largest foreign bank network: Leading foreign bank in China 227 outlets in 57 cities, 23 provinces / municipalities1 Best Foreign Bank in China for 5 consecutive years during 2013-20172 Bohai Rim 38% Yangtze River Delta Market leader in various categories PRD + Rest of GD 14% c.33% of foreign bank sector’s 2016 net profits3 Branch Others distribution1 Leading market shares in custodian services4 for RQFII (53%) and QFII (36%) HARBIN 28% 21%
CHANGCHUN SHENYANG Strong China franchise and capabilities BEIJING DALIAN TANGSHAN TIANJIN Widest range of financial sector licences among QINGDAO TAIYUAN JINAN foreign financial institutions5: ZHENGZHOU XI’AN SHANGHAI HEFEI HSBC Bank (China) (100%) HANGZHOU Banking CHENGDU WUHAN NINGBO Hang Seng Bank (China) (100%) CHONGQING NANCHANG CHANGSHA FUZHOU Asset HSBC Jintrust Fund Mgmt (49%)
GUANGZHOU XIAMEN Management Hang Seng Qianhai Fund Mgmt (70%) KUNMING NANNING HSBC Life Insurance (50%) SHENZHEN Insurance Tier 1 cities with HSBC China outlets HSBC Qianhai Securities (51%) Cities with HSBC China outlets Securities Province / municipality with HSBC China branch presence
1. Includes Hang Seng Bank China, as of December 2017. 4. SAFE/CSRC website. 2017 custodian market share in terms of total approved QFII / RQFII quota. 2. FinanceAsia country awards. 5. Bracket indicates HSBC shareholding; Hang Seng Bank (China) and Hang Seng Qianhai Fund 3. China Banking Regulatory Commission (“CBRC”) Annual Report; 2017 data not available yet. Management shareholding are owned via Hang Seng Bank. 52 Mainland China: Financial performance Business growth supported by a balanced mix1
Revenue Profit before tax Business mix (USDbn) 2017 Revenue PBT CAGR 62% +6% +10% 2.4 0.6 29% 27% 0.4 1.2 26% 25% 19% 19% -7%
Loans and advances to 2010 2017 2010 2017 Customer accounts customers (net) 47% 34% 0% Customer accounts Customer loans and advances Deposits Loans 0% 25%
22% 46 41 31% +8% +11% 41%
27 19 RBWM CMB GB&M GPB & Corp Centre 2010 2017 2010 2017
1. Financial performance includes Hang Seng and exclude associates, on reported basis 53 Mainland China: Strategic priorities Strategic priorities for HSBC China
Invest in enhancing products and capabilities Capture growth from domestic 1 Drive customer growth retail
Capture sustainable growth from higher value-added sectors Support tomorrow’s winners 2 (corporates)
Optimise strategic client coverage and China Desk infrastructure to drive China outbound / Belt & Road 3 opportunities to Group Initiative (BRI)
HSBC Qianhai Securities – the first foreign majority-owned securities firm Capitalise opportunities from 4 rise of capital markets
Commercialise Commercialise investments 5 Pearl River Delta (PRD) Replicate success / drive growth in the rest of China and beyond investments
Act as anchor to Group’s RMB Sustain market leadership 6 internationalisation (RMBI) Enhance supporting system and resource proposition Maintain thought leadership within market and government ecosystems
54 Mainland China: Domestic retail Fast-growing middle class with emerging wealth and liquidity; potential foundation for sustainable growth of HSBC in China
Growth drivers HSBC strategic focus areas
Significant wealth accumulating in China Capture China’s rise of middle class and wealth creation Investible individual financial assets1, USDtn Mutual funds balances grew 23% in 2017 CAGR +12% 34 HSBC Jintrust: Assets under management reached USD 4.3bn Wealth in 2017, up 60% Management +21% 19 HSBC Life Insurance: Gross Written Premiums reached USD175m in 2017, up 37%
4 Launched health and education themed campaigns to focus on higher value and international minded customer segments 2007 2016 2021E
Consumption and credit needs growing rapidly Retail consumption loan2, USDtn Grow asset book and tap into key consumer credit CAGR needs by launching new products +22% 2 Lending 500k+ new credit cards since launch in end-2016 +34% 1 Mortgage balances up 14% in 2017 Launched Retail Business Banking in 2017 0
2007 2016 2020E
1. BCG Report “China Wealth 2017: The Way Ahead After a Golden Decade”. 2. The People’s Bank of China, WIND, CITICS research. 55 Mainland China: Domestic retail Widespread consumer adoption of digital financial services provides opportunity to grow and improve customer experience
Rapid growth in China’s digital financial marketplace HSBC strategic focus areas
1 1 Mobile payments Online AUM Extend digital infrastructure build, focussing on mobile and onboarding (USDtn) (USDbn) Digitalise Leverage tech to improve front-end user CAGR customer journey & experience (e.g. biometrics, chatbots etc.) platforms +74% +83% Expand digital insurance, mortgages, 24 403 wealth solutions
3 66 Launch “online-only” saving products and unified customer rewards system 2013 2017E 2013 2016 Digitalise propositions Develop health and other ecosystem- Online lending1 Investment in FinTechs2 based propositions (e.g. travel, education, (USDbn) (USDbn) housing, lifestyle)
+121% +93% 358 1 Explore partnership opportunities with third parties to expand channels and Digital improve efficiencies, for example: partnerships • Co-branded products 15 0 • Big data driven credit assessments 2013 2017E 2013 2017
1. Source: iResearch 2. Source: KPMG report – “The Pulse of FinTech Q4 2017” 56 Mainland China: Support tomorrow’s winners China building global innovation and technology leadership with rapid development expected to continue
Significant investments in China’s market share in high value China accounts for 1/3 of unicorn technological upgrades products almost tripled since 2007 companies3 globally Business enterprise R&D expenditure1 Share of world’s 100 most complex Global unicorns %; number4 in USDbn products exports2, % China Japan Korea China Japan RoW China US RoW CAGR 15.1% 0.7% 8.1% US Korea 2008 = 100 262 883 0.3% 1.5% 100% 100% 400 4.2%
350 34% 18.0% 14.0% 43% 300 15.5%
250
200 14.5% 47% 150 11.0% 18.2% 45% 100 2.3% 3.5% 50 1.0% 67.7% 65.8% 19% 62.5% 12% 0 2008 2013 2017F 1997 2007 2016 # of unicorns Valuation
1. WIPO, HSBC Research. 2. UN Comtrade, HSBC Research. 3. A unicorn company s a privately held startup company with a current valuation of USD1 billion or more. 57 4. CB Insights. Mainland China: Support tomorrow’s winners iFLYTEK – China’s next technological leader aspiring to rapidly expand internationally with evolving banking needs
Leading voice and image HSBC’s strategic focus on emerging growth sectors recognition software developer Ranked 6th out of Increased client coverage aligned with geographic / segment 50 Smartest Tech developments: Companies in 20171 Typical banking requirements Example – Technology:
PRD as the pilot with a emphasis on hi-tech manufacturing Funding for R&D Investment Beijing: software development stage Working capital financing Shanghai: online retailing
Capital market financing Spotlight: HSBC Shenzhen grew tech client coverage Development: IPO (A- / H-share) Loan portfolio mix2 Commercial- Private placement isation stage Public debt issuance 100% Loan syndication Tech
International banking network to facilitate Others Ongoing M&A advisory expansion Cross-border financing Liquidity / transaction 2014 2017 management
1. MIT Technology Review (July / August 2017 issue); top five listed were Nvidia, SpaceX, Amazon, 23andMe, Alphabet. 2. HSBC Shenzhen branch loan balance only (excluding Hang Seng). 58 Mainland China: China Outbound / Belt & Road Initiative China a key anchor to global capital flows and growth for HSBC
Select strategic business corridors relating to China Corridor Country ODI from China1 (USDbn) 3% China Outbound Revenue2 (yoy %) 69% 6% China Outbound UK France 2 Revenue 1.5 1.5 22% +71% +23% Canada 2.9 Asia + Aus. +210% Europe US Hong Kong N. America 17.0 114.2 Middle East +86% +13%
Singapore India China a global growth driver for investments and capital 3.2 0.1 +2% Investments in infrastructure from the Belt and Road +65% Initiative; private sector overseas investments and M&As Bilateral trade flows with key countries continue to increase Australia HSBC well equipped to capture opportunities 4,2 25 dedicated China Desks covering 40 countries3 +10% Focused senior management engagement: 12 out of 25 HSBC’s strategic corridors are China-related
1. Overseas direct investment from China. Source: CEIC, 2016. 2. Include China outbound GBM and CMB related cross border revenues only; exclude Financial Institution Group. Data presented is on year-on-year basis, as of 2017. 3. As of February 2018. Coverage include: Argentina, Australia, Bangladesh, Canada, France, Germany, Hong Kong, India, Indonesia, Israel, Luxembourg, Macau, Malaysia, Mauritius, Mexico, Poland, Saudi Arabia, 59 Singapore, Sri Lanka, South Africa, Thailand, UAE, UK, US, Vietnam Mainland China: Capital markets China’s capital markets have grown with the opening up of its financial sector; HSBC well-placed to capture related opportunities
…HSBC has expanded its franchise and China’s capital markets have been gradually opening up… leadership along the way
Market leader in a wide range of Shenzhen-Hong custodian services1, including RQFII Shanghai-Hong Kong Stock (53%) and QFII (36%) Kong Stock Connect Bond Connect Connect launched launched launched First JV securities company majority- owned by a foreign bank in China, opened for business in December 2017 2011 2014 2015 2016 2017
Among first banks to offer a number of cross-border services:
Bond Connect in Mainland China's RMB Qualified Mutual China interbank bond market Institutional Recognition of Interbank Bond Shenzhen / Shanghai-Hong Kong Investor Scheme Funds (MRF) Market (CIBM) Stock Connect (RQFII) launched launched Direct launched
First foreign bank to be granted a lead underwriting licence for corporate panda bonds in the inter-bank market
1. SAFE / CSRC website. 2017 custodian market share in terms of total approved QFII / RQFII quota. 60 Mainland China: Capital markets HSBC Qianhai Securities complements HSBC Bank China’s onshore capabilities and access to the fast growing capital markets segment
Combining to offer comprehensive onshore product suite …amidst significant growth opportunities in the for corporate clients… onshore capital market Select comparison of capabilities Current offering Domestic exchange market fund raising, USDbn1
HSBC HSBC Bank 769.2 Categories Qianhai China Securities 1. Capital Financing Limited Debt Capital Markets access CAGR+39% Equity Capital Markets
Leveraged and Acq. Finance
Infrastructure, Energy and Export Finance 2. Mergers and Acquisitions
3. Research 89.1 55.9 4. Markets
Equities 2008 2012 2016
Foreign Exchange Bond issuance Follow-ons IPOs
1. China Securities and Regulatory Commission 61 Mainland China: Capital markets Examples: How HSBC Qianhai Securities can support customers’ corporate finance needs
Example 1 – Equity: A-share and H-share dual listing Example 2 – Debt: Panda Bond issuance
Existing Hong Kong-listed Chinese client following its Existing Fortune 500 client with onshore RMB H-share IPO with onshore equity financing need financing needs
Potential solutions Client discussion initiation HSBC Referral Pre A-share listing: sponsoring, underwriting and financial Overseas office advisory services
Post A-share listing: equity refinancing solutions post-IPO
Deal structuring HSBC Qianhai Offshore – Onshore Underwriting Hong Kong Mainland China Securities Execution H-share IPO + A-share IPO Client relationship maintenance HSBC China
62 Mainland China: Pearl River Delta Execution against Pearl River Delta strategy in progress
Progress since 2015 Investor Day announcement Example: RBWM customers in PRD up >4.7x Total PRD RBWM new-to-bank customers only, 000s >700 new hires in 2017; more than Headcount doubled since project launched in CAGR JUN15 160 +472% Launched Tablet for mortgage origination Launched first Video Teller Machine Digital 22 Launched WeChat Banking 5 Launched facial recognition for small 2015 2016 2017 funds transfer on mobile banking (1st among foreign banks in China) Example: customer portfolio more localised; improved funding stability and cross-sell opportunities Mortgage loans up 44% in 2017 from Mortgages USD0.8bn to USD1.2bn PRD CMB customer mix by count1 (%)
100% First JV securities company majority- HSBC Qianhai owned by a foreign bank in China, Local 38% 42% 43% 49% Securities opened for business in December 2017
RMB2bn (USD290m) credit facility under 62% Foreign 58% 57% 51% CMB Innovation the CMB Innovation Growth Fund Growth Fund approved for 39 clients in PRD 2014 2015 2016 2017
1. Exclude Business Banking customers. 63 Mainland China: Conclusion China as a source of sustainable growth for HSBC
HSBC China strategic priorities
Macro trends Capture growth from domestic retail – invest to enhance products and 1 capabilities and drive customer growth
China becoming the global Tomorrow’s winners – capture sustainable growth from higher value- frontier of innovative 2 industries; vast development added sectors of internet-enabled eco- systems China Outbound / BRI – optimise strategic client coverage and China 3 China outbound investments Desk infrastructure to drive opportunities to Group to continue, anchored by BRI
Significant development of Rise of Chinese capital markets – capture opportunities through China 4 the capital markets and franchise including HSBC Qianhai Securities international connectivity Rise of the middle class; Pearl River Delta – commercialise investments and replicate success / 5 evolution of consumption drive growth in rest of Greater China patterns and volumes
RMB Internationalisation – sustain market leadership, enhance 6 supporting system and resources, and maintain thought leadership
64 Risk
9 April 2018
Mark McKeown Chief Risk Officer, Asia-Pacific Risk Agenda
Risk framework
Credit quality
China
Looking ahead
Conclusion Risk: Risk framewok A robust risk-management framework
Culture and Values
Non-executive risk governance
Risk Governance
Executive risk governance
Responsibilities Three Lines of Defence model
Risk appetite
Enterprise-wide risk-management tools – risk appetite profile, top and emerging risks report, risk map and stress Processes testing
Identification and Monitoring Management Reporting assessment
Policies and procedures
Controls Control activities
Systems and infrastructure
67 Risk: Credit quality A balanced and diversified portfolio1 in Asia with high credit quality
Gross loans and advances to Gross loans and advances to Corporate credit exposure3 – customers – USD428bn customers – by customer and by sector product segment Impaired 0.5% Other wholesale 7% Others Residential 27% Sub-Investment Real Estate mortgages 28% Grade 26% 22.3%
Metals & Mining 3% USD428bn USD428bn USD291bn Credit card advances 3% Agriculture & Other Soft IT & personal Commodities Electronics Investment Corporate 7% 4% 9% Grade 57% 77.1% Public Apparel & Consumer Utilities Textiles Construction, Goods & 4% 5% Materials & Retail Transportation Engineering 8% 6% Increased by USD61bn, or 17%, from 6% FY2016 on a reported basis Balanced portfolio mix – 35% Retail vs. 65% Diversified Corporate portfolio: 63% of exposures are 2 77% are investment grade . Increased by Wholesale investment grade 20% from USD276bn to USD331bn, outpacing the growth rate of the overall 82% of RBWM book is mortgages Corporate Real Estate book Average LTV: 32% 72% investment grade 0.5% impaired loans and advances. <1% has LTV greater than 80% Selective focus on top tier developers with strong Decreased by 9% from USD2.5bn to performance track records with HSBC USD2.3bn Hong Kong book has a similar split 57% of corporate exposures are booked in Hong > 60% are booked in Hong Kong Kong, of which 39% is Corporate real estate-related
1. All data as of December 2017 2. “Strong” and “Good” credit quality as disclosed in Annual Report. Equivalent to internal credit rating CRR 1 – 3 for wholesale lending and EL 1 – 3 for retail lending. 3. Based on drawn exposure. 68 Risk: Credit quality We have grown in a managed way – evidenced by consistently low LICs
Growth in a managed way
We have increased the focus on active 500 1.00% risk management and early warnings as we have grown the book 450 0.90%
Asia Loan book growth rate (CAGR) ) 400 0.80% 11% from 2008 – 2017. Hong Kong is 350 0.70% the primary contributor to the growth (> USDbn 60% in the recent 3 years) 300 0.60% LICs as a % of Gross loans and advances 250 0.50%
< 0.2% since 2011 against the 200 0.40% backdrop of loan book growth 150 0.30% Hong Kong: < 0.15% since 2010
LICs from China exposure remain GrossLoans and Advances ( 100 0.20% low 50 0.10% 10-year historical peak in Global Financial Crisis (2008) was - 0.00% managed below 1% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Gross Loans and Advances - Rest of Asia Impaired loans % gross loans and Gross Loans and Advances - Hong Kong advances below 0.7% since 2011 LIC % Gross Loans and Advances - Asia LIC % Gross Loans and Advances - Hong Kong
69 Risk: China China is delivering our long-term growth – in a disciplined manner
1 Total China drawn risk exposure of Total China drawn risk exposure of USD160bn of which 58% of wholesale drawn risk exposure is onshore. USD160bn Wholesale: USD150bn; Retail: USD10bn Wholesale - USD150bn Gross loans and advances to customers of cUSD41bn in Mainland China (by country of booking, excluding Hong Kong and Taiwan) Losses remain low (onshore LICs of less than USD100m in FY17) Impaired loans and days past due trends remain low HSBC’s onshore corporate lending market share is 0.14% which allows us to be selective in our lending
Wholesale analysis, USDbn
Corporate Lending by sector: 149.6 Metals & Mining 135.2 138.4 1.7 Chemicals & Plastics Credit cards Mortgages - USD9bn 1.5 1.5 Public utilities 4% and other 36.9 5% 34.7 32.5 NBFI Consumer goods & consumer - USD1bn 5% Retail 36.7 Banks 29.8 33.3 6% Other sectors Sovereigns Construction, 39% Corporates Materials & 8% USD74bn Mainland gross Mainland 69.2 71.1 74.3 Engineering loans and customer accounts, USDbn advances to 15% customers, 52 2015 2016 2017 IT & Electronics USDbn 50 17% 41 Wholesale lending by risk type: Real estate 34 c. 28% of lending is to Foreign Owned Enterprises, CRR 1-3 4-6 7-8 9+ Total c. 33% of lending is to State Owned Enterprises, Sovereigns 36.7 - - - 36.7 c. 39% to Private Sector Owned Enterprises
Banks 36.4 0.5 - - 36.9 Corporate real estate 57% sits within CRR 1-3 (broadly equivalent to NBFI 1.4 0.3 - - 1.7 investment grade) Corporates 46.7 27.1 0.2 0.3 74.3 Highly selective, focusing on top tier 2016 2017 2016 2017 developers with strong performance track Total 121.2 27.9 0.2 0.3 149.6 records with HSBC Focused on Tier 1 and selected Tier 2 cities 1. Retail drawn exposures represent retail lending booked in Mainland China; wholesale drawn exposures represents wholesale lending where the ultimate parent or beneficial owner is Chinese. 70 Risk: Looking ahead Looking ahead – Top and emerging risks
Key risks Mitigating actions
Strong hiring competition for employees and their Succession planning Impact of organisation change and regulatory expertise Close management oversight of demand on employees Completing global change initiatives including Global organisational change Internal Internal Standards, IFRS9, BCBS239 etc.
New Deferred Prosecution Agreement issued in Enhancement of compliance programmes, Deferred Prosecution JAN18 in relation to historical foreign exchange sales internal controls and strong focus on culture Agreement and trading activities Agreed a USD101.5m settlement to resolve charges
Increased regulatory scrutiny and tightening liquidity Strengthening client selection and early risk Credit outlook in China identification Global market environment and trade relations Stress tests and regular reviews of key portfolios
Cyber threat and Increasing sophistication of cyber attacks Enhancing capabilities on security event unauthorised access to protection, detection and incident response systems Ransomware and distributed denial of service attacks as the dominant threat processes
External Elevated regional political Korean peninsula instability Close monitoring of geopolitical outlook risk US-China tensions (Korea, trade etc.) Portfolio specific stress testing as required
Financial crime risk Evolving nature of financial crime threats in tandem Continue enhancement of Financial Crime environment with geopolitical development Risk function Changing sanctions regulatory landscape Better use of sophisticated analytical techniques Regulatory developments with adverse impact on Stringent regulatory and supervisory requirements Full engagement with governments and business model and Senior manager regime focus in certain countries regulators in relation to new requirements profitability
71 Risk: Conclusion Key messages
1 Robust risk management framework
2 Balanced portfolio with high credit quality
3 We actively manage risk
4 We have grown safely
72 Appendix Appendix: Hong Kong - PRD / Greater Bay Area Future growth opportunities underpinned by strengthened connectivity with mainland China, in particular PRD / GBA
Hong Kong is the major investment conduit and largest trade partner to Guangdong Strategic focus 1 Guangdong ODI / FDI / Trade , USDbn, 2016 Leverage HSBC’s strength in Hong Kong and footprint in Hong Kong Guangdong to provide one-stop banking platform Rest of world 996 19% Provide integrated proposition Offshore financing hub 21 23 Offshore 2-hour express payment financial Coverage and products teams with 62% 75% services to cross border working experiences PRD clients Capture growth from emerging sectors in PRD, e.g. innovation and technology, ODI FDI Trade high-end manufacturing Further connectivity supported by infrastructure development Travel time between selective PRD cities / Hong Kong2, minutes Support local and Time saved MNC clients tap into 240 New journey time to Hong Kong mainland China’s capital market through 175 Support Hong collaboration with HSBC China and Kong and HSBC Qianhai Securities 115 195 105 multinational Potential opportunities: panda 45 clients in PRD bonds, A+H dual listing 31 67 Enhance cross border trade and cash 48 70 45 14 solutions to capitalise from the growing import / export and investment flows Shenzhen Guangzhou Foshan Zhuhai
1. Source: Statistics Bureau of Guangdong Province, Hong Kong Census and Statistics Department 2. Source: “The Greater Pearl River – 7th Edition” by Invest HK. Time saved based on train travel via new Express and Intercity Railway connections and car travel via Hong Kong – Zhuhai – Macau bridge, upon completion / operation in 2018 74 Appendix: Hong Kong - Global connectivity: MNC Capitalise on trade and investment flows from MNCs using Hong Kong as the regional centre
Hong Kong is a leading international Case study: support a multinational client achieve efficiency, flexibility, financial centre and transparency with all-in regional solution anchored in Hong Kong
Previous Client profile Rank1 Centre1 rank1 A global market leader in B-to-B distribution of electrical products and services with entities in 44 countries and regions, of which 10 in Asia-Pacific 1 London 1 Cash management Trade 2 New York 2 Multi-currency cash concentration Various types of trade structure connecting finance solutions to suit the 3 Hong Kong 4 domestic and regional Hong Kong: client’s needs in different liquidity integrated solution projects / contracts 4 Singapore 3 covering China, Singapore, Indonesia, 5 Tokyo 5 Currencies Malaysia, Thailand Credit and lending Hedging FX volatility Regional umbrella across major Asian facilities to back funding th 2 4 largest FX market by turnover currencies requirements across markets
7th largest stock market / 3rd Asia3 HSBC Capabilities #1 IPO market in 20174 Extensive breadth of products Competitive pricing >3k MNC regional HQs / offices5 Strong implementation ability backed by our network in Asia-Pacific Seamless collaboration among RMs / product teams across countries
1. Source: The Global Financial Centres Index 22, the latest ranking as of SEP17 4. By # of IPOs; source: EY 2017 “Global IPO trends” report 2. Bank of International Settlements triennial survey issued in SEP16, net-gross basis 5. Hong Kong Census and Statistics Department 3. Includes GEM; as of DEC17; source: SFC, WFE, Bloomberg 75 Glossary Glossary Glossary of terms
Term Definition Term Definition
Ratio of loans and advances to customers to A/D ratio customer accounts AUM Assets under management
ADB Asian Development Bank BARC Barclays Bank PLC Adjusted performance excludes the year-on- year effects of foreign currency translation BCG Boston Consulting Group differences and significant items which distort the year-on-year comparison of reported results. The term significant items collectively bn billion describes the group of individual adjustments Adjusted performance excluded from reported results when arriving BoAML Bank of America Merrill Lynch at adjusted performance and which management and investors would ordinarily identify and consider separately when BRI Belt and Road Initiative assessing performance in order to better understand the trends of the business BSM Balance Sheet Management AIIB Asian Infrastructure Investment Bank CAGR Compound annual growth rate AM Asset Management CC Corporate Centre APAC Asia-Pacific CER Cost efficiency ratio ASEAN Association of Southeast Asian Nations
AU Australia
AUC Asset Under Custody
77 Glossary Glossary of terms
Term Definition Term Definition
Differs from reported revenue. Client revenue 1.Estimated Market share is calculated by relates to client income which includes total taking HSS’s Asia Pacific AUC (provided by Client revenue income from GB&M clients relationships HSS) divided by Total Asia Pacific AUC (using before synergies with other global businesses Tricumen data, which is estimated to cover c.60% of Asia Pacific AUC) and excludes internal costs of funds. Ernst & Young (“EY”) 2.Estimated Market Positioning is derived methodology CMB Commercial Banking comparing HSS’s AUC in Asia Pacific to 10 Asset Servicing Asia Pacific AUC values that EY holds data for, assuming these 11 Asset CNY Chinese Yuan Renminbi Servicing companies (including HSS) are the largest in Asia Pacific CS Credit Suisse Group AG ETF Exchange Traded Funds
CSRC China Securities Regulatory Commission FDI Foreign Direct Investment
DB Deutsche Bank AG FICC Fixed Income, Currencies & Commodities
DCM Debt capital markets FIG Financial Institutions Group
DTC Digital transformation for Corporates FUM Funds under management
ECM Equities capital markets FX Foreign Exchange
ECM Equity Capital Markets G10 currencies include United States dollar, Euro, Japanese yen, Pound sterling, Swiss G10 Currencies franc, Australian dollar, New Zealand dollar, EMEA Europe, Middle East and Africa Canadian dollar, Swedish krona, Norwegian krone
78 Glossary Glossary of terms
Term Definition Term Definition
Industrial and Commercial Bank of China GB Global Banking IDBC Limited
GB&M Global Banking and Markets IMF International Monetary Fund
GBA Greater Bay Area Client revenue booked in Country A where the Inbound revenue primary relationship is managed outside of GDP Gross domestic product Country A Percentage change in revenue over the Jaws GFC Group Finance Companies percentage change in costs
JPM JPMorgan Chase & Co GLCM Global Liquidity and Cash Management
JV Joint Venture GM Global Markets
GPB Global Private Banking LATAM Latin America
Loan impairment charges and other credit risk GS Goldman Sachs Group Inc LICs provisions
GTRF Global Trade and Receivables Finance M&A Mergers and Acquisitions
HKMA Hong Kong Monetary Authority
HKQAA Hong Kong Quality Assurance Agency
HSS HSBC Securities Services
79 Glossary Glossary of terms
Term Definition Term Definition
MENA Middle East and North Africa QFII Qualified Foreign Institutional Investor
MLA Mandated Lead Arranger RBWM Retail Banking and Wealth Management
MNCs Multi-national corporations RCF Revolving Credit Facility
MS Morgan Stanley Reported view of performance is determined on an International Financial Reporting NAFTA North American Free Trade Agreement Reported results Standards (“IFRS”) basis as reported in HSBC’s annual report and accounts and other NDB New Development Bank financial and regulatory reports RMB Renminbi NIM Net interest margin RMBI Reminbi Internationalisation NZ New Zealand RoRWA Return on risk-weighted assets ODI Outward Direct Investment
Organisation for Economic Co-operation and RoTE Return on tangible equity OECD Development Renminbi Qualified Foreign Institutional Client revenue relating to clients where the RQFII Investor primary relationship is managed in Country A, Outbound revenue but the revenue is booked outside of Country RWAs Risk-weighted assets A PBT Profit before tax SAFE State Administration of Foreign Exchange
PRD Pear River Delta SG Société Générale
80 Glossary Glossary of terms
Term Definition
TLA Term Loan A tn trillion
United Nations Conference on Trade and UNCTAD Development
USD US Dollar
VNB Value of new business
Y-o-Y Year-on-year
YTD Year-to-Date
81